Loan-to-value (LTV)

Explanation

Loan-to-value is the single most useful number for any loan secured by investments. A $200,000 loan against a $1,000,000 portfolio is a 20% LTV. Your equity, the part you own outright, is the rest: 1 − LTV, or 80%.

How much of a $1,000,000 portfolio is usable? It depends on the lender and the holdings:

• Margin account (Reg T): up to about 50% on diversified marginable stocks, so roughly $500,000.
• SBLOC: often 50% to 70% advance rates on diversified stock portfolios ($500,000 to $700,000), more for high-quality bonds, less for concentrated positions.
• What is prudent is a different question. Borrowing the maximum leaves almost no room for a decline. Many people who borrow against portfolios keep LTV well below the maximum to survive large market drops.

How a drop leads to a call: your loan stays the same when markets fall, but your collateral shrinks, so LTV rises. With a 30% maintenance requirement, a call comes when LTV exceeds 70%. Loan interest that is added to the balance pushes LTV up too, even in a flat market.

For context, the S&P 500 fell about 49% from 2000 to 2002, about 57% from 2007 to 2009, about 34% in early 2020 and about 25% in 2022. Individual stocks and sector funds can fall much more.

In scenarios, the app tracks LTV every period, flags when it crosses your lender’s limits, and in Monte Carlo mode shows the share of simulations that hit a call.

Example

Portfolio: $1,000,000. Maintenance requirement: 30%, so a call comes when LTV exceeds 70%. The drop that triggers a call is 1 − loan ÷ (portfolio × 0.70).

Loan	Starting LTV	Portfolio value at call	Drop to call
$100,000	10%	$142,857	85.7%
$200,000	20%	$285,714	71.4%
$300,000	30%	$428,571	57.1%
$400,000	40%	$571,429	42.9%
$500,000	50%	$714,286	28.6%

At 20% LTV, a 2008-sized fall of about 57% would have left LTV at $200,000 ÷ $430,000 = 46.5%, with no call. At 50% LTV, it would have triggered one.